There is no specific Georgia construction trust fund statute, but there are other provisions that impose civil and criminal liability for misappropriated project payments.

A handful of states have enacted what are known as “construction trust fund statutes.” These provisions are meant to protect payment to downstream project participants. There is no specific Georgia trust fund statute on the books. However, there are criminal statutes and certain instances where similar requirements are imposed on Georgia construction projects.

Construction trust fund statutes

The construction payment chain is fraught with risk. Everyone down the chain has to rely on the tier above them to properly handle their money. And the same goes on and on until you reach the source of the money; i.e., the owner. That’s a lot of trust in an industry that isn’t exactly famous for it.

Construction trust fund statutes have been enacted in direct response to this problem. Yes, there are still mechanics lien rights available to sub-tier participants. But those rights require taking action against the owner (through their property) as opposed to placing liability on the general contractor or sub who is potentially to blame for the non-payment problems.

States that have trust fund statutes in place convert money received on a construction project into trust funds. This means that the person receiving payment intended to be released down the chain is liable for any misappropriation of those funds. They are required to hold those payments in trust and have a fiduciary duty imposed on them in favor of their subs and suppliers.

Georgia’s similar trust fund provisions

Although Georgia has no construction trust fund statute per se, there are state laws and similar ways that liability can be imposed on those who misuse construction project funds. One way is through a criminal theft statute, while the other is an equitable civil remedy imposed by the courts.

Conversion of payments for real property improvements

Georgia has a criminal statute, O.C.G.A. §16-8-15, titled: Conversion of payments for real property improvements. This statute provides a criminal cause of action if:

Any contractor, sub, or other person who with intent to defraud shall use the proceeds of any payment made to him on account of improving certain real property for any other purpose than to pay for labor or services performed on or materials furnished by his order for this specific improvement while any amount for which he may be or become liable for such labor, services, or materials remains unpaid commits a felony.

A conviction under the statute

A conviction under this statute requires specific intent to defraud. Although the statute states that failure to pay for materials or labor furnished for property improvements is evidence of intent to defraud; this only creates a presumption.

For instance, a general contractor who failed to make payments was found innocent in Thompson v. State. The contractor, in that case, offered evidence that the supplier had owned them money. The failure to pay was based off an intent to offset the billing, rather than to steal. Therefore, it stands to reason that if there is sufficient evidence of a good faith dispute, the courts will dismiss the case due to a lack of specific intent.


If convicted, this is a felony charge; and the contractor could be facing imprisonment anywhere from 1 to 5 years. This is left to the judge’s discretion. Also at the judge’s discretion, the crime may be downgraded to a misdemeanor if they so choose, depending on the specific circumstances of the case.

Constructive trust fund doctrine

The constructive trust fund doctrine does not, in itself, constitute a cause of action. There is no state statute that provides for this. Rather, the doctrine is an equitable remedy imposed by the courts to prevent any unjust enrichment by those who receive construction funds.

The main Georgia case law on this comes from Bethlehem Steel Corp. v. TidwellIn that case, the court determined that “Georgia law recognizes the constructive trust fund doctrine with respect to payments owed to materialmen by their contractors for improvements made to the third party’s realty.

How the doctrine works

A Georgia constructive trust fund doesn’t operate in the same manner as a traditional trust. There is no actual trustee, nor is there any obligation to hold the funds in a separate account. The doctrine simply imposes a fiduciary duty on the contractor to distribute payment funds to the subs and suppliers who earned them. Failure to do so will expose them to personal liability for the amount of money that was misappropriated.

One main advantage to classifying the money as trust funds, us that it insulates the money from any third party creditors or any declaration of bankruptcy by the contracor receiving the funds.

When this doctrine applies

The court stressed that the doctrine applies in very narrow circumstances. The general rule is that the trust obligations will not apply where the sub or supplier has not taken steps available to secure a mechanics lien right. Essentially, the rights and duties under the constructive trust fund doctrine no longer exist once lien rights are lost.

How these work together

While many cases refer to the criminal statute as a factor to impose the doctrine, this doesn’t mean these always work in tandem. As the judge in Doyle Dickerson Co. v. Durden stressed, that a violation of the penal statute does not automatically give rise to a civil cause of action on the part of one who claims to be injured.

Thus, the crime of “conversion of payments for real property improvements” by itself is not enough to establish a constructive trust. It depends on the specific circumstances and the status of the injured party’s lien rights. The doctrine is a civil remedy, while the violation of the criminal statute does not provide any such civil remedies.

Bottom line

Although Georgia doesn’t have a specific trust fund statute, there are similar principles and liabilities that are imposed on contractors for misappropriation of construction project funds. Both of these principles may only be available in specific circumstances, but it does show that Georgia courts are willing to impose civil and criminal penalties on those who misuse construction payments.

This is important to keep in mind from both the payor and the payee perspectives. The paying party needs to be aware of their liability when receiving project funds. As for the party receiving funds, this offers alternative avenues of reimbursement for getting payments that they have rightfully earned.

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Does Georgia Have a Construction Trust Fund Statute?
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Does Georgia Have a Construction Trust Fund Statute?
There is no specific Georgia construction trust fund statute, but there are other provisions that impose civil and criminal liability for misappropriated project payments.
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